BCC Subcommittee Materials

BCC Subcommittee Materials

The BCC Subcommittee Materials from meetings in Sacramento on February 13 are almost 500 pages. aBIZinaBOX submitted five items which are reproduced in the reports.

The Cannabis Advisory Committee will be holding a series of Subcommittee Meetings on Tuesday, February 13 in Sacramento. Ten Subcommittees will meet to discuss and develop recommendations to the state cannabis licensing authorities’ formal rulemaking packages.

MEETING NOTICES: The Meeting Notices and Agendas for each Subcommittee Meeting will be posted on the Bureau of Cannabis Control’s website – www.bcc.ca.gov – at least 10 days
prior to the meetings. A webcast will not be available for the meetings. All Subcommittee Meetings are open to the public.

Bureau of Cannabis Control

CA Cannabis Licensing

Cannabis Advisory Committee Mtg 2 13 18

Cannabis Advisory Committee Mtg 2 13 18 Cannabis Advisory Committee Mtg 2 13 18 in Sacramento The Cannabis Advisory Committee will be holding a series of Subcommittee Meetings on Tuesday, February 13 in Sacramento. Ten Subcommittees will meet to discuss and develop recommendations to the state cannabis licensing authorities’ formal rulemaking packages. The agenda and meeting materials … Continue reading “Cannabis Advisory Committee Mtg 2 13 18”

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Cannabis Advisory Committee Mtg 2 13 18 Cannabis Advisory Committee Mtg 2 13 18 in Sacramento The Cannabis Advisory Committee will be holding a series of Subcommittee Meetings on Tuesday, February 13 in Sacramento. Ten Subcommittees will meet to discuss and develop recommendations to the state cannabis licensing authorities’ formal rulemaking packages. The agenda and meeting materials … Continue reading “Cannabis Advisory Committee Mtg 2 13 18”

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Water Board – Small Irrigation Use Registration

Water Board – Small Irrigation Use Registration Water Board – Small Irrigation Use Registration was announced earlier this week. It represents important information for cannabis cultivators in California. Yesterday the State Water Board announced that the Small Irrigation Use Registration is available through the Cannabis Portal. This is an exciting development, providing for streamlined registration … Continue reading “Water Board – Small Irrigation Use Registration”

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Water Board – Small Irrigation Use Registration Water Board – Small Irrigation Use Registration was announced earlier this week. It represents important information for cannabis cultivators in California. Yesterday the State Water Board announced that the Small Irrigation Use Registration is available through the Cannabis Portal. This is an exciting development, providing for streamlined registration … Continue reading “Water Board – Small Irrigation Use Registration”

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Important Information for Cannabis Distributors

Important Information for Cannabis Distributors CDTFA issued an Important Information for Cannabis Distributors on February 2, 2018 The following is the text of an announcement that CDTFA released on Important Information for Cannabis Distributors As a cannabis distributor, you must electronically file your cannabis tax returns and pay the cultivation tax and cannabis excise tax due … Continue reading “Important Information for Cannabis Distributors”

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Important Information for Cannabis Distributors CDTFA issued an Important Information for Cannabis Distributors on February 2, 2018 The following is the text of an announcement that CDTFA released on Important Information for Cannabis Distributors As a cannabis distributor, you must electronically file your cannabis tax returns and pay the cultivation tax and cannabis excise tax due … Continue reading “Important Information for Cannabis Distributors”

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CA Cannabis Advisors – Raise The Bar

CA Cannabis Advisors – Raising The Bar

CA Cannabis Advisors
aBIZinaBOX – PCPS Member Firm – CA Accountancy Corporation

CA Cannabis Advisors – Raising The Bar is focused on helping the commercial cannabis industry in California succeed. The fundamental principle that underlies any professional service firm is “THE FIRMS SUCCESS IS DIRECTLY TIED TO THE CLIENT’S SUCCESS”. Please the phrase in quotes and commit it to memory. aBIZinaBOX is a CPA firm. which is licensed in California, and the CPA’s that are employed by the firm are licensed in California [we will come back to why that matters later.]

The underlying concept is the same across every profession, occupation, and trade that support the “touch the leaf” businesses within the commercial cannabis industry in California [equally valid in other jurisdictions, however, we are going to limit the discussion to an environment where we have FIRST-HAND knowledge. Some examples of additional providers that serve the CA cannabis industry with focused skills include:

The Cannabis Story Lab – Public Relations, Branding
Nola Weis LLP – California  Lawyers For Cannabis Businesses

There are a select number of high-quality professionals that have chosen embrace the industry in California. Unfortunately, there are opportunistic, marginal firms that have pursued the cannabis businesses, due to the early lack of willingness by established firms to take on the risks of an industry that the Federal Government continues to persecute based upon antiquated, and irrational beliefs fostered by what we call Reefer Madness Think. “RMI”

If RMI were recognized for the paranoid mindset that it is, it wouldn’t be nearly so harmful. However, the cannabis industry continues to suffer from severe consequences such as:

 

  • Significantly enhanced penalties for routing California Dept. of Tax and Fee Administration [“CDTFA”] penalties starting at 50% of the tax versus 10% for every other
     Important Information for Cannabis Distributors
    Important Information for Cannabis Distributors

    business.

  • The Internal Revenue Service does not recognize Cannabis Cultivation as “agricultural activity” aka “farming” and there is not corresponding NACIS Industry Code for it. As such, cannabis cultivators in California could be denied significant tax benefits  [e.g ability to expense certain single purpose property used in farming such as greenhouses] .which are available to other industries under the recently enacted TCJA of 2018. You can review our analysis of the issue California Cannabis Cultivation as Farming.

Ther are over twenty State of California agencies involved in the regulation of the commercial cannabis industry. You can see an overview of all of them at the California Cannabis Portal site.

California Cannabis Chek
Building Confidence in the California Cannabis Industry

We have undertaken a focused effort to leverage the unique skills that certified public accountants possess to facilitate building confidence in the California cannabis industry as CA Cannabis Advisors.  We have developed California Cannabis Chek TM which is comprised of a SaaS software application, technical resources, training, and ultimately a certification process for CPA’s. The process is ground in core attest concepts which have been developed by the CPA profession including:

Agreed-Upon Procedures Reporting – SSAE 18, Attestation Standards: Clarification and Recodification(effective May 1, 2017), principally as AT-C section 215
SOC -2 and SOC-3 Reporting
Privacy Reporting Concepts

The standards contain a Maturity Framework for the evaluation of internal accounting controls over cash:

Level 1: UnreliableThe unpredictable environment for which controls have not been designed or implemented.

Level 2: Informal. Controls are present but inadequately documented and largely dependent on manual intervention. There are no formal communications or training programs related to the controls.

Level 3: Standardized. Controls are in place and documented, and employees have received formal communications about them. Undetected deviations from controls may occur.

Level 4: Monitored. Standardized controls are in place and undergo periodic testing to evaluate their design and operation; test results are communicated to management. Limited use of automated tools may support controls.

Level 5: Optimized. An integrated internal controls framework with real-time monitoring by management is in place to implement continuous improvement. Automated processes and tools support the controls and enable the organization to quickly change the controls as necessary.

The complexities of evaluating and reporting on internal controls, privacy, and other Agreed Upon Procedures is an attest function. The performance of attest services is specialized and required significant education and training and is RESTRICTED by the California Board of Accountancy [and every other state and territory in the US to CPA’s]. Enrolled Agents are NOT authorized nor capable of performing such work. If you observe an Enrolled Agent representing that they can provide such services, they should be immediately reported to the State Board of Accountancy, and the Internal Revenue Service Office of Professional Responsibility.

CPA’s and Attorneys with proper, verified eduction such and an LLM or MST in taxation are additionally uniquely qualified to address the tax, accounting, and regulatory compliance needs of Cannabis businesses in California. We have begun the discussion with the California industry regulators, tax authorities, and the profession about leveraging the unique skills of CPA’s to assist the industry. Engaging with FinCEN and other regulators is on our short-term roadmap. Let’s improve the skills for the choice of CA Cannabis Advisors.

You can verify a CPA’s credentials, disciplinary record and CPE at CPAVerify.com., an Enrolled Agent’s status here. You can learn more about the Regulation of Tax Professionals here.

You can learn more about the differences between CPA’s and Enrolled Agents here. 

California Combined Cannabis – CCCBRC

California Combined Cannabis Business Representation Credential – CCCBRC

California Combined Cannabis Business Representation Credential –  CCCBRC came to me in a dream last night. Either that, or it was a nightmare. No, it was a dream; the nightmare is the situation that those of us that represent commercial cannabis businesses in California are currently living with. The nightmare is having to deal with somewhere between a half dozen to a dozen different state agencies each of which has different rules and procedures for the representation of individuals and businesses that are involved with the cannabis industry. Don’t forget our thoughts on how NOT to become an expert.

Relevant Definitions – Circular 230 Practitioners

We need to introduce some terminology and background to understand both the problem and a very elegant potential solution. The first aspect is the concept of a relational database, a relational database management system [“DBMS”] and the key element in a database, which is a common unique identifier or “CUI”. The relevant definitions are:

  • Relational Database – A relational database, more restrictively, is a collection of schemastablesqueries, reports, views, and other elements. Database designers typically organize the data to model aspects of reality in a way that supports processes requiring information, such as (for example) modeling the availability of rooms in hotels in a way that supports finding a hotel with vacancies.
  • Database Management System [“DBMS”]  is a computer-software application that interacts with end-users, other applications, and the database itself to capture and analyze data. A general-purpose DBMS allows the definition, creation, querying, update, and administration of databases.
  • Common Unique Identifier [“CUI”] – is a unique identifying record that has been vetted, verified, and is maintained in a secure repository such that it is accepted as a reliable means to identify an individual or item. The most common examples are social security numbers [“SSN”], driver’s license numbers [“DLN”], and vehicle identification numbers [“VIN”]. 

There are substantial concerns about the privacy of personal financial information such that SSN and DLN information is not the preferred choice for the purpose that I have in mind. However, the license number for an attorney or certified public accountant [“CPA”] issued by a State, or the registration number issued by the US Treasury – Internal Revenue Service [“IRS”] to an Enrolled Agent [“EA”] are other examples of such numbers.

Each represents publicly available information for a group of individuals that has already been granted the right to represent both individual and business taxpayers in every jurisdiction in the United States [collectively, they are referred to by the IRS as “Circular 230 Practitioners“]. The individuals in this group have had their personal identification verified, usually including US passport, driver’s license or state identification, fingerprints, and in some jurisdictions DNA independently verified by the issuer of their credentials. The academic credentials, and satisfaction of required examinations and experience have also been verified [we note that the deficiency for EA’s is a lack of education and experience requirement, which we have previously discussed and you can read about here.]

Additional CUI’s Which We Rejected

We are aware of additional CUI’s such as:

  • Preparer Tax Identification Number [“PTIN”] is an identification number that all paid tax return preparers must use on U.S. federal tax returns or claims for refund submitted to the Internal Revenue Service (IRS).
  • California Tax Education Council [“CTEC”]  is a registration which is unique to California [New York and Oregon are examples of additional states which have similar programs]. California law requires anyone who prepares (or assists with) tax returns for a fee, and is not an attorney, certified public accountant (CPA) or enrolled agent (EA), to register as a tax preparer with CTEC.

Both of these CUI’s represent individuals with substantially lower levels of experience, education, validation and verification than Circular 230 Practitioners. As such, while they may have some skills and provide a useful service, they are not appropriate at this point in our analysis.

Circular 230 Databases Currently In Use

Just to provide additional background on relational databases currently in use to verify or validate Circular 230 Practitioners in California that are currently in use, we have:

There are similar search and lookups provided in all of the US states and territories, and the ability to verify firms and professional service entities are available. You can read more about them here. As an outstanding example of how multiple lookups can be combined, we highlight CPAVerify.com, a project of the National Association of State Boards of Accountancy [“NASBA”].

CPAverify is an online central repository of information about licensed CPAs and public accounting firms maintained by the National Association of State Boards of Accountancy (NASBA) to provide a single-search resource covering participating jurisdictions where a person or firm has been licensed.  With the widespread adoption of mobility, the need for the general public to be able to determine if a person or firm is licensed and in good standing is more prevalent than ever.

Just to provide an illustration, here is what is returned when I look myself up on CPAVerify.

California Combined Cannabis - California Cannabis CPA
Jordan S. Zoot CPA – CPAVerify.com Search Results
Inter-Agency Databases In Use Today

There are several states that already provide comprehensive portals where tax professionals can register themselves, as well as individual and business entity clients that they represent, to obtain confidential taxpayer information as well as file tax returns and make payments on behalf of their clients. As an example we highlight several that we consider being the most advanced, secure and well executed:

View account balance and tax year details.

View estimated payments and credits before filing a return.

Verify the exact business entity name to use when filing a return.

View payment history.

View a list of tax returns.

View images of tax returns.*

View a list and images of notices and correspondence.

Update contact information.*

View proposed assessments.

View California wage and withholding information – individual clients only.

View FTB-issued 1099 information – individual clients only.

  • Online services:

Calculate a balance due for a date in the future.

File a power of attorney (POA).

File a nonresident withholding waiver request.

Protest a proposed assessment.*

Respond to a proposed assessment to request a 30-day deferral to file a tax return.*

  • Options to communicate with us:

Chat with an FTB representative about confidential matters.

Send a secure message with attachments to FTB.

  • Further, FTB makes the following services available to Tax Practitioners that can be reviewed here.

California Dept. of Tax and Fee Administration [“CDTFA”] – Form CDTFA-392 is already in use and common to CDTFA and the California Employment Development Department [“EDD”] though at this time, the current requirements require a separate form even if identical information is provided be provided to each agency. Further, CDTFA already has an electronic services portal that Circular 230 Professionals can access for multiple individuals and business entities after completing a Power of Attorney registration process for each. A snapshot of the main Online Services screen appears below.

California Cannabis CPA
California Combined Cannabis – CDTFA
California Cannabis Regulatory Agencies – Combined Access

The triad of California agencies with direct regulatory oversight of the commercial cannabis industry –

have already integrated their Online Licensing and Registration Portals and share all kinds of information for all kinds of licenses.  The information is on the BCC website:

California Combined Cannabis
California Cannabis CPA

when a prospective applicant takes the next step and selects the Online Licensing Portal for ANY license they are taken to:

California Combined Cannabis
BCC Online Licensing Portal

Once the log-in and authentication process is complete, BCC presents the applicant with the choice that involves all three distinct agencies:

California Combined Cannabis
BCC, CDPH, and CDFA share common licensing site.

All of which illustrates that the inter-related relational database concept linking multiple agencies is not only possible, but the California cannabis regulators have already implemented the baseline version.

What Additional Features Should CCCBRC Include for Implementation?

If you have stayed with this and gotten this far, permit us to present “CCCBRC Nirvana”.

Our Wishlist

Let’s start with the BCC Online Licensing Portal and Add:

Basic Necessities – List 1

Second Tier State Regulatory Agencies – List 2

The second tier list adds California State Agencies that are involved with some subpart of cannabis regulation such as water and pesticides.

Third Tier County and Municipal Agencies – List 3

Having taken you this far, now we swing for the fences and use Humboldt County, CA to illustrate the importance of county and municipal governments in the California cannabis regulation scheme, starting with zoning and land use which is an absolute requirement that an approval be obtained for many of the California state level licenses.

Finally, if Humboldt County doesn’t seem quite sufficient, what about land use and Chapter 5 of the Code in Los Angeles. If you would like another 4,000 words to read, you can go here.

We would really appreciate your thought and comments, particularly if you are a California Cannabis CPA or other Circular 230 Professional serving California cannabis industry clients, please consider joining our Facebook Group for Circular 230 Cannabis Industry Professionals. There you have it, the dream or nightmare of a California Combined Cannabis Business Representation Credential. Back to reality, let start by getting BCC, CDPH and CDFA to permit Circular 230 Professionals to represent licensees and applicants, and yes you can read about that issue here.

 

 

 

 

Controls Over Cash – Commercial Cannabis Business

Controls Over Cash – Commercial Cannabis Business

Perhaps the most important operational issues we encounter as a California Cannabis – CPA are controls over cash – commercial cannabis business. The integrity and reliability of internal accounting controls over cash is the single most important factor in the ability of investors, regulatory agencies, and bankers ability to trust a California commercial cannabis industry business.

We have studied and evaluated the operational structures and controls over cash in numerous cash-intensive businesses. We have concluded that the model structure advocated by the Nevada Gaming Control Board is the “Gold Standard” for cash-intensive businesses.  The internal control procedures and reporting both by businesses and their independent accountants are readily adaptable by a California cannabis – CPA. However, in order for a business to be able to obtain the level of service from its outside accountants, they need to verify that the firm and the individual practitioner employed by the California Cannabis CPA firm they select is:

  • Licensed by the California Board of Accountancy – the verification and validation of CPA licensure are very simple either on CPAVerify or the license lookup on the California Board of Accountancy website.
  • Has the required experience to issue attest reports. The  ” A Experience Designation” on the CBA website indicates whether a California CPA has the verified experience to sign off on attest engagements such as financial statement audits, or reports on internal accounting controls [See more about this below].
  • Has a sufficient level of experience to have acquired the requisite perspective to properly evaluate the results of their audit procedures. We suggest ten years as a bright line of experience, and the profession seems to agree, based upon the length of time required to become a partner with Big 4 and most national firms.
  • Has a graduate degree in Taxation or Computer Science – while not an absolute requisite, the almost universal 150-hour requirement for CPA’s is best satisfied with a master’s degree. The presence of a graduate degree in taxation or computer science demonstrates that the CPA made a specific investment in technical skills that are most relevant and beneficial to commercial cannabis businesses. 

You can learn more about California regulatory requirements for cannabis businesses at:

The California Board of Accountancy discussion about “Experience Designation” appears below.

Controls over Cash - Commercial Cannabis Businesses California Cannabis CPA
California Board of Accountancy Experience Definition

The “key takeaway” from the definition is that a California cannabis – CPA should have the A Experience Designation, a sufficient level of experience, we suggest that ten years as a guideline for the time to develop the requisite judgment and experience.

Finally, if you are curious about how some of the other “so-called experts” stack up, we have done the homework on that for you as well take a look here. Oh and by all means look up California Cannabis – CPA – Derek Davis or New Era CPA’s – Paul Rutledge and ask them about the criteria we discuss in this post and tell them aBIZinBOX Cannabis Practice Group sent you. Our view is that the best way to distinguish verifiable expertise and experience from self-designation is best done by direct inquiry.

California Cannabis CPA Experience

aBIZinaBOX decides to tackle the question of California Cannabis CPA

California Cannabis CPA
Firm Experience Evaluation

Experience. We enjoy stirring the pot should we have said cannabis? and bursting the bubble of those that would delude prospective clients and themselves about the criteria that matter for the selection of an advisor.

We think that the criteria which matter in the selection of a CPA [the only smart choice] of a financial, tax and compliance advisor for a commercial California cannabis business should consider:

  • Is the firm led by certified public accountants? We think that a CPA is the VASTLY superior choice over an Enrolled Agent for numerous reasons which you can read more about here.
  • Are the firm’s leadership CPA’s licensed in California? Our thought is that if the subject is California commercial cannabis industry, then you should limit your choices to a licensed California CPA.
  • Does the CPA have an “A” endorsement in California? The “A” endorsement validates experience for the performance of attest services, while the “G” endorsement is precluded from signing attest reports.
  • How long has the CPA been licensed? The time that a CPA has been in professional practice provides insight into certainly their level of experience, and most likely their level of expertise.
  • Does the individual have Big 4 experience? Despite what many of the less experienced firms would like you to believe, the Big 4 has been, is and will continue to be the “Gold Standard” for training, experience, and professional development for CPA’s.
  • What level of experience with Big 4? Once you confirm Big 4 experience, then the question becomes, how far did the individual advance with the firm. The difference between two years on the audit staff and a full equity partner, such as both Jordan S. Zoot CPA, and Samuel E. Levinson CPA were is HUGE.

If you would like to investigate the subject a bit further, we offer a treat for you on our website which you can access here.  You can also check a CPA’s credentials at CPAVerify.com

How Taxes Apply to Cannabis Inventory

How Taxes Apply to Cannabis Inventory  CDTFA has issued a Special Cannabis Notice that explains how taxes apply to cannabis inventory as of January 1, 2018. Effective January 1, 2018, a 15 percent cannabis excise tax applies to the average market price of the retail sale. The average market price is determined by the type … Continue reading “How Taxes Apply to Cannabis Inventory”

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How Taxes Apply to Cannabis Inventory  CDTFA has issued a Special Cannabis Notice that explains how taxes apply to cannabis inventory as of January 1, 2018. Effective January 1, 2018, a 15 percent cannabis excise tax applies to the average market price of the retail sale. The average market price is determined by the type … Continue reading “How Taxes Apply to Cannabis Inventory”

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